Walmart Buys 77% Stake In India’s Flipkart For $16 Billion

NEW DELHI : US retailer Walmart Inc on Wednesday acquired a 77 per cent stake in Flipkart for about $16 billion in its biggest acquisition till date.

The deal values the 11-year old Indian e-commerce firm at $20.8 billion. A final close to the deal is expected to take place later this year.

Were the transaction to end in the second quarter of the fiscal year, Walmart said it would expect a hit to full year 2019 earnings per share (EPS) of roughly 25 cents to 30 cents.
Bentonville, Arkansas-based Walmart will acquire about 77 per cent stake in Flipkart, Walmart said in a statement. Sachin Bansal, who had co-founded Flipkart with Binny Bansal in 2007, would exit the company after the deal.
The remainder of the business will be held by existing investors, including Flipkart’s co-founder Binny Bansal, Tencent, Tiger Global and Microsoft.
India’s first billion-dollar e-commerce company, Flipkart, sells 8 million products across 80-plus categories. It has 100 million registered users. SoftBank Group chief executive Masayoshi Son had earlier said that its investment in the Indian online marketplace had almost doubled. Other major investors in Flipkart include Tiger Global, Naspers and Accel while the Bansals own just over 5 per cent each of the company, according to data from business intelligence platform paper.vc.
Walmart said in a statement that its long-term aim would be to support Flipkart’s transition into a publicly-listed subsidiary. The retailer said it expects India’s e-commerce market to grow at four times the rate of the overall retail industry.Walmart’s president and chief executive, Doug McMillon, said the investment in Flipkart was part of the company’s aim to invest in India’s fast-growing economy.
“India is one of the most attractive retail markets in the world, given its size and growth rate, and our investment is an opportunity to partner with the company that is leading transformation of e-commerce in the market,” McMillon said in a statement. Walmart’s investment in Flipkart includes $2 billion of fresh equity funding. Walmart said it will use a combination of newly issued debt and cash to finance the round. The two companies are in talks with other potential investors to join the investment, which could reduce Walmart’s stake.
The company reported an earnings miss in February, signaling the competitive challenges it faces from the likes of Amazon in online retail.Earlier on Wednesday, SoftBank CEO Masayoshi Son said Walmart had reached an agreement to take control of Flipkart. SoftBank is currently one of the largest shareholders in Flipkart. According to some reports, the Japanese tech giant is set to sell its entire stake as part of the deal.

Flipkart has 100 million users signed up to its platform, according to the company’s website. India, which has a population of 1.3 billion, is seeing rapid growth in its digital economy with the emergence of e-commerce start-ups like Snapdeal and Paytm.The investment will see Walmart take on U.S. e-commerce firm Amazon in a key growth market for the company. In 2016, Amazon CEO Jeff Bezos announced that his company would invest $3 billion in India. Amazon reportedly made its own bid for a majority stake in Flipkart.
Walmart’s deal with Flipkart marks the retailer’s latest move to up its international presence. in late April, Walmart’s U.K. supermarket brand Asda merged with rival Sainsbury’s, a tie-up that presented a significant competitive challenge to Britain’s dominant grocer Tesco. Shares of Walmart were down 3.5 percent in U.S. premarket trade on Wednesday following the announcement.
India’s e-commerce market is tipped to grow to $200 billion in a decade, according to global financial services company Morgan Stanley, as cheap mobile data makes online shopping increasingly accessible. Flipkart, which is competing with Amazon.com Inc for market share in India’s e-commerce market, gained online fashion market dominance with the 2014 acquisition of Myntra, which subsequently bought rival Jabong.

Meanwhile, Amazon – Flipkart’s biggest rival in India – has committed to invest over $5 billion in India.For Walmart, the Flipkart deal will offer a big advantage in terms of presence in the Indian e-commerce market. Acquiring a stake in Flipkart will help Walmart tap into the India’s retail market without building stores.
India is the next big potential prize for global retailers after the US and China, where foreign retailers have made little progress against Alibaba Group Holding. “Flipkart is key to a global e-commerce strategy,” said Arvind Singhal, chairman of the New Delhi-based retail consultancy Technopak Advisors. “Walmart clearly doesn’t want to be left behind in the race as India is a critical piece.”
(With agency inputs)